I've been a financial journalist for more than 20 years: I've written for most of the national newspapers in the UK (plus a host of magazines and web sites) on topics related to business, economics, finance, property, investment, personal finance and entrepreneurship.
I've held staff jobs at newspapers including The Observer, the Daily and Sunday Express and, most recently, The Independent, where I spent several years as Business Editor managing the newspaper’s business coverage.
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Iwoca And Ezbob Battle It Out For Britain's Online Traders

Napoleon once described Britain as a “nation of shopkeepers”. More than 200 years later, that description is as apt as ever – but these days, more of those shops are to be found online than on the high street, where vacancy rates remain stubbornly high despite an accelerating economic recovery.

Who will finance these online merchants’ growth? Well, in one increasingly important corner of Britain’s e-commerce marketplace, two young businesses are going head to head. In one corner stands Iwoca, which this week announced it has raised £5 million of second-round funding from investors including Global Founders Capital and Redline Capital Management. In the other sits Ezbob, which has so far picked up around £3 million of funding from business angels.

Research from IMRG and Capgemini suggests that e-commerce sales in Britain reached £87 billion last year, 12 per cent more than in 2012. But what’s often not appreciated is just how much of that total is accounted for by small independent traders selling products through the online marketplaces that the likes of Amazon and eBay have become in recent times – as much as a seventh on some estimates.

Those independent traders include hundreds of thousands of micro businesses trading small amounts of stock, often from their owners’ homes. And although this cottage industry is booming, it’s unlikely ever to get much support from mainstream banks – Britain’s high street lenders don’t like retail at the best of times, let alone young businesses of such small scale.

Enter Iwoca and Ezbob. The two companies were founded in 2011 and 2012 respectively in order to offer short-term loans to traders on Amazon, eBay and other online marketplaces. Borrowers take out loans ranging from a few hundred pounds to a few thousand and typically repay the money over the course of several months. Loan applications are made online and decisions are almost instantaneous.

In other words, the funding is designed to provide relatively small amounts of short-term working capital (in fact, Iwoca’s name is a contraction of instant working capital), typically for businesses investing in inventory. Without such finance, many of these businesses’ cashflows would be too constrained to enable them to ever reach escape velocity – instead, they’d remain tiny, hobbyist ventures.

These companies are technology businesses as much as they’re credit providers. Like Britain’s Wonga, whose booming consumer credit operation is propelling it ever more rapidly towards a highly valuable IPO, the business model of both Iwoca and Ezbob is based on technology that automates lending decisions on the basis of algorithms designed to use credit scoring and other financial data to ensure that advances are only made to businesses that will repay them.

In that sense, these companies are pure-play internet ventures. Their sales pitch is to businesses that would not exist without the technologies that make e-commerce possible. And their own business model wouldn’t work without automated online processes and advanced data analytics.

In Britain, however, Iwoca and Ezbob are taking advantage of another phenomenon of our time – the withdrawal of conventional lenders from large parts of the small business arena. They are effectively operating in a captive market where borrowers know they’re the only game in town.

That gives the two businesses a solid foundation on which to build an international operation, which is likely be their next move (overseas expansion is one ambition behind Iwoca’s latest funding).

This is an appealing prospect, for while the growth of ecommerce – and independent traders’ role within in it – is a feature of almost all Western markets, no single business has yet been able to seize the initiative internationally in the space in which Iwoca and Ezbob operate. US business Kabbage is an obvious competitor, but its overseas expansion is in its infancy too. There is, in other words, all to play for.

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